0:00

Joe, would you ever live in New York

0:02

City? At this point, I wouldn't, but

0:04

I'll tell you this, if I were 25

0:06

right now, hell yeah, I would. Ah, what about

0:08

with your kids? Like when your kids

0:10

were young, would you live with them

0:13

there? I think I would, absolutely,

0:15

yeah. Awesome. I think there's so

0:17

many opportunities, there's so many

0:19

things to see, there's so

0:21

much art and culture, which we're

0:23

totally into. Yeah, well, we are

0:25

going to answer a question a

0:27

question today, a question today, We're

0:29

also going to answer a question from

0:32

a caller who he and his wife

0:34

make a fantastic income, and they're using

0:36

that to make big contributions to their

0:38

taxable brokerage account so that they can

0:41

have FU money and choose to walk

0:43

away from their jobs at some point

0:45

in the future if they ever decide

0:47

that they are tired of the grind.

0:49

And we're going to close with a

0:52

question from someone who is wondering why

0:54

do we keep citing the year 1970

0:56

when we talk about the efficient frontier?

0:58

All that in one episode?

1:00

Absolutely. So buckle up. Welcome to

1:02

the Afford Anything podcast, the show

1:04

that understands you can afford anything,

1:07

but not everything. Every choice carries

1:09

a trade-off. And that applies to

1:11

your money, time, focus, and energy.

1:13

The show covers five pillars. Financial

1:15

psychology, increasing your income, investing, real

1:17

estate, and entrepreneurship. It's double-I-fire. I'm

1:19

your host, Paula Pant. I trained

1:21

in economic reporting at Columbia. Every

1:23

other episode I answered questions from

1:25

you, and I do so with

1:28

my buddy. The former financial planner,

1:30

Joe Salcihii. What's, what's up Joe. It's

1:32

a great day to be here. I am

1:34

caffeinated and ready to go, Paula. Amazing. Well,

1:36

then our first question today comes from

1:38

Debbie. Hi, Paula and Joe. I have a

1:40

house finance and question for you both. My

1:42

husband and I have been trying to

1:45

save to buy a house, but it's been

1:47

a little difficult because we live in Paula's

1:49

favorite place in New York City. So we

1:51

have about 5% of a down payment

1:53

saved right now, but I realize

1:55

recently that if we cash out

1:58

our ETFS and mutual funds, that

2:00

this could get us to about

2:02

a 20% down payment. This would

2:04

make our monthly payment on the

2:06

house much more affordable with mortgage

2:08

rates where they are. I just

2:11

wanted to get an outside perspective

2:13

from someone that isn't so emotionally

2:15

attached to both our savings but

2:17

also to the idea of owning

2:19

a home. So I wanted to

2:21

see what you guys thought of

2:23

this idea for a little added

2:26

insight and extra pressure that we

2:28

are expecting a baby later this

2:30

year which is part of why

2:32

we were looking for a house

2:34

now. As someone who works from

2:36

home, I cannot share our small

2:39

one-bedroom New York City apartment with

2:41

both a baby and my office

2:43

and my husband. So I just

2:45

want to get your eyes's opinion.

2:47

I'll also add that we do

2:49

contribute to our employer 401Ks and

2:51

we have an individual Roth account,

2:54

so it's not like we're taking

2:56

away from our only savings account.

2:58

Hey, thanks looking forward to your

3:00

insight. Okay and also Paula I

3:02

want to add that you need

3:04

to try Vola table in Hell's

3:07

Kitchen if you haven't for a

3:09

really great vegetarian Thai food and

3:11

also Super Moon Bakery in the

3:13

Lower East Side for fun pastries.

3:15

Thanks. Bye. Debbie! It's always great

3:17

to hear from a fellow New

3:19

Yorker. Congratulations on your upcoming growing

3:22

family and let's dive right into

3:24

your question. So what I hear

3:26

as you are describing this dilemma

3:28

is a conflation of two different...

3:30

issues. And it might just be,

3:32

I know you have the limitations

3:35

of sending a one minute or

3:37

two minute voicemail, so you may

3:39

not have had a chance to

3:41

unpack and explain everything, but here's

3:43

the situation as I understand it.

3:45

You live in New York City

3:47

and you're a renter, which means

3:50

you live in an extremely small

3:52

footprint and you also rent that

3:54

space. As your family grows, you

3:56

want a bigger footprint, which I

3:58

absolutely understand. And you're also thinking

4:00

about buying. And so this is

4:03

where I see a conflation of

4:05

two different issues, because there's the

4:07

question, should we move so that

4:09

we can have more space? And

4:11

then there's the question, should we

4:13

buy? And I see those as

4:15

two very different questions. And to

4:18

the question, should we move so

4:20

that we can have more space?

4:22

That sounds like that's not even

4:24

a question. It's an absolute yes.

4:26

Now I don't know exactly where

4:28

you're planning on moving to. I

4:30

also don't know what part of

4:33

New York City you live in.

4:35

So it might be that you

4:37

live in Manhattan and you're moving

4:39

to outer Brooklyn or outer Queens

4:41

or Northern New Jersey where you

4:43

can just have a bigger footprint

4:46

somewhere. That, absolutely, as your family

4:48

expands, you work from home, you'll

4:50

have a newborn baby. Moving to

4:52

an outer borough, if that's what

4:54

you're planning on doing, so that

4:56

the cost per square foot becomes

4:58

cheaper, which means you can have

5:01

more square feet? Absolutely. But that's

5:03

a very different question than the

5:05

question of should we rent or

5:07

buy? It's funny, Paula, the idea

5:09

of a spacious Manhattan apartment is

5:11

funny. There was a comedian that

5:14

I like who was talking about

5:16

how spacious his Manhattan apartment is,

5:18

and he said it's... super spacious,

5:20

there's room for a pencil and

5:22

a bottle of water. It's great.

5:24

In the words of Homer Simpson,

5:26

it's funny because it's true. Yeah,

5:29

right, exactly. And I thought the

5:31

same way, but you know what

5:33

I think most is, is that

5:35

whether she rents her buys, this

5:37

is the heart of financial planning

5:39

for me. which is it isn't

5:42

about more money, it's about more

5:44

life and doing the thing that

5:46

you want to do. So no

5:48

matter how we solve this, realizing

5:50

that this is such an important

5:52

goal, it's a thing that people

5:54

work around. So I totally 100%

5:57

agree, move, absolutely move. You could

5:59

hear it in your voice. Yeah.

6:01

I want to move. So definitely

6:03

move. And then now it's how

6:05

do we optimize around that? Yeah.

6:07

And I don't see any compelling

6:10

reason. that she needs to buy

6:12

at this juncture. In fact, in

6:14

the greater New York City area,

6:16

renting from a purely mathematical perspective,

6:18

renting makes far more sense than

6:20

buying. Now the exception is if

6:22

you're house hacking or if you

6:25

are an investor who wants to

6:27

generate an income producing property, that's

6:29

different, but it doesn't sound like

6:31

that's her goal. Her goal is

6:33

not to house hack, it's simply

6:35

to move to another location that

6:38

is more appropriate for what she

6:40

wants at this point in her

6:42

life. And in New York, the

6:44

financially sensible thing to do is

6:46

to rent. I'll tell you the

6:48

way that you can calculate this,

6:50

there's this metric called the price-to-rent

6:53

ratio. And this is a way

6:55

for everyone who's listening to do

6:57

the math on whether it makes

6:59

more sense to rent or buy

7:01

in the specific area where you

7:03

live. Now the price-to-rent ratio is

7:06

the home price divided by the

7:08

annual rent. So, for example, let's

7:10

say that you were to buy

7:12

a home that was $500,000. as

7:14

the purchase price, or you could

7:16

rent that same home for $2,000

7:18

per month, which is $24,000 per

7:21

year. Well, $500,000 divided by $24,000

7:23

equals 20.8. And so in that

7:25

case, there's a decent argument. It's

7:27

not a slam dunk. That's a

7:29

bit of a gray zone, but...

7:31

There's a decent argument towards buying

7:34

if you plan on being there

7:36

for a very long period of

7:38

time. There's also a decent argument

7:40

towards renting if you don't plan

7:42

on being there that long. Twenty

7:44

is like that gray zone. Now,

7:46

let's change the numbers a little

7:49

bit. Let's take that same $500,000

7:51

property and let's assume that the

7:53

rent on that property is $3,000

7:55

per month or $36,000 per year.

7:57

Well, in that case, the price

7:59

to rent ratio is 13.8, which

8:02

means it is a slam dunk

8:04

purchase. You buy that property. Absolutely.

8:06

Let's take it in the other

8:08

direction, though. Let's say that. $500,000

8:10

property rents for $1,200 a month,

8:12

which is $14,400 per year. Well,

8:14

in that case, the price-rent ratio

8:17

is 34.7, which means there is

8:19

no question you definitely want to

8:21

rent that. You do not want

8:23

to buy that. So the price-rent

8:25

ratio outlines whether it's a better

8:27

deal to rent or buy. The

8:29

broad parameters around it is that

8:32

if the price-rent ratio is about

8:34

16 or under, buy the place.

8:36

Buying is a much better deal.

8:38

If the price-rent ratio is somewhere

8:40

between 16 to 22, 23, year

8:42

in the gray zone, I'd even

8:45

say up to 24, year in

8:47

the gray zone. And if that

8:49

price-rent ratio is anywhere between 16

8:51

to 24, your answer as to

8:53

whether it's a better deal to

8:55

buy or rent is largely going

8:57

to depend on. other life factors,

9:00

such as how long you plan

9:02

on living there, because remember the

9:04

transaction costs are the most significant

9:06

costs when it comes to property

9:08

purchase. If you think about it

9:10

in terms of a mutual fund,

9:13

there's a hefty front-end load and

9:15

a hefty back-end load when it

9:17

comes to acquiring a home. So

9:19

16 to 24 is the gray

9:21

zone. Anything that is 25 or

9:23

above, you absolutely want to rent.

9:25

Renting is a much better deal.

9:28

And... I know that there are

9:30

people out there still to this

9:32

day who erroneously believe that renting

9:34

is quote unquote throwing money away,

9:36

which is ludicrous and If you

9:38

want me to go down that

9:41

rabbit hole, I will, because I

9:43

can rant about this for an

9:45

entire episode as to why that

9:47

statement is intellectually lazy and makes

9:49

no mathematical sense. But I'll spare

9:51

you that rant unless somebody requests

9:53

it. Another day. Yes, but if

9:56

the price to rent ratio is

9:58

25 or above, you definitely want

10:00

to be renting that place. And

10:02

granted, every borough is different. Right?

10:04

What's true in Cape Town, Manhattan

10:06

is not going to be the

10:09

case in even Bay Ridge, Brooklyn,

10:11

but in Manhattan, the median price-to-rent

10:13

ratio across the board is 50,

10:15

50, 50. So in Manhattan, you

10:17

could have all the money in

10:19

the world. You could be Jeff

10:21

Basos. It would still make sense

10:24

to rent. So there's some easy

10:26

math to do, but it sounds

10:28

like you're strongly betting that it's

10:30

going to come out in favor

10:32

of rent is what I'm hearing.

10:34

I'm assuming that... Most probably, but

10:37

don't take your word for it.

10:39

Yeah, I'm assuming that, because she

10:41

didn't specify exactly where she would

10:43

move to, so I'm assuming that

10:45

she will stay in the New

10:47

York City area. Unless there's some

10:49

part of the New York City

10:52

area that I'm unfamiliar with, I

10:54

don't know the outer boroughs quite

10:56

as well. Maybe she wants to

10:58

go upstate. Maybe she wants to

11:00

go just two hours north to

11:02

Rhinebeck or to Poughkeepsie, right? The

11:05

math totally changes there. So if

11:07

she's planning on staying in Manhattan,

11:09

it's a slam dunk, you should

11:11

remain a renter forever. But if

11:13

she's planning on going upstate. That

11:15

completely changes the game because the

11:17

numbers there vastly different. Yeah. They're

11:20

the polar opposite. Most places upstate,

11:22

in upstate New York, it makes

11:24

more sense to buy. So our

11:26

answer is move to Buffalo. She

11:28

doesn't have to go that far.

11:30

Not all the way upstate. She

11:33

can go like an hour and

11:35

a half upstate. That's the thing

11:37

about New York City. You don't

11:39

actually have to go that far

11:41

to get to a place where

11:43

buying makes more sense than renting.

11:45

Yeah, it largely is going to

11:48

depend on where she decides to

11:50

live. But Debbie, the first thing

11:52

that I would do in whatever

11:54

area you're thinking about moving to

11:56

is crunch the price-rent ratio. That's

11:58

going to give you parameters around

12:00

whether it's a slam dunk... rent,

12:03

a slam dunk to buy, or

12:05

gray zone. It'll be your guiding

12:07

light. Exactly. Now, with all of

12:09

that said, Debbie, I do want

12:11

to address the other portion of

12:13

your question, and Joe, I'm curious

12:16

to hear what your perspective is.

12:18

So let's assume, hypothetically, that Debbie

12:20

is interested in moving to a

12:22

location where the price-rent ratio is,

12:24

let's say, 22 or 23, and...

12:26

She plans on living there forever,

12:28

and so it makes, even though

12:31

that is a gray zone, it

12:33

makes sense for her to purchase.

12:35

Should she? Yes. I haven't finished

12:37

the question, Joe. I think I

12:39

know where you're going. Maybe not.

12:41

Should she cash out the ETFs?

12:44

The ETFs and the mutual funds.

12:46

Should she take the tax hit

12:48

of cashing out her taxable brokerage

12:50

account? Oh, I'm never going to

12:52

let the tax tail wag the

12:54

dog. What I would solve for,

12:56

and I love this question, I

12:59

would first begin with, I want

13:01

to take out less debt if

13:03

possible. So my bias is going

13:05

to be toward less debt, which

13:07

means my bias is toward cash

13:09

them in. Now I don't want

13:12

to do that right away. I

13:14

love your point Paula about the

13:16

tax, even though I don't want

13:18

the tax tail to wag the

13:20

buy a house dog. I do

13:22

want to make sure I know

13:24

what that tax is going to

13:27

be ahead of time because I

13:29

don't like surprises and I want

13:31

to be able to factor that

13:33

into the math. If it's incredibly

13:35

high, maybe it becomes material. I'm

13:37

doubting it would be, but even

13:40

bigger than that. What I really

13:42

want to know is how will

13:44

that affect my long-term-term goals. So

13:46

if I use this toward the

13:48

house phenomenal short-term goal what happens

13:50

to my retirement dream or babies

13:52

couch front like I don't know

13:55

what the other goals are but

13:57

whatever this money was being saved

13:59

for What's? the impact in starting

14:02

over or going in reverse

14:04

on those goals. Again, my

14:06

biases toward cash them in,

14:08

but if it's going to

14:10

seriously affect my retirement

14:12

goal and I can afford the

14:14

cash flow, then I begin going

14:17

in reverse, meaning maybe I cash

14:19

in a quarter of it and

14:21

then maybe half of it, that

14:23

maybe it works at three quarters.

14:26

So that I find this sweet

14:28

spot of. I've got. enough money

14:30

going toward the down payment that I

14:32

can afford the cash flow and continue

14:34

on full blast toward my long-term

14:37

goals. That's what I want to know is

14:39

what's the economic follow because too often Paula

14:41

what do we do? We have these goals

14:43

and then we go after one of them

14:46

forgetting and I'm going to go back to

14:48

Stephen Covey. Stephen Covey says you pick up

14:50

one end of the stick the other and

14:52

the stick comes with it. What's the other

14:55

end of the stick? If I use

14:57

the money for this, I can't use

14:59

it for something else. So because everything

15:01

dovetails together when it comes to my

15:03

financial plan, how does this impact the

15:06

other end of that stick? That's essentially

15:08

where my head is on this. How about you?

15:10

I would want to know if she

15:12

can split the tax hit between two

15:14

different taxable years, if she were to do this.

15:17

I don't know exactly what the time

15:19

frame is for buying this home. and

15:21

I know that we've just flipped into

15:23

a brand new calendar year, so this

15:25

is probably the worst time of year

15:28

to say this, because it's like, oh,

15:30

well, have fun waiting 10 months.

15:32

Well, but there's a broader picture

15:34

here, Paula, which is, I think

15:36

what you're saying is, look at the

15:39

entire deck of cards, meaning if

15:41

it's October, November, December, I'm

15:43

going to easily make the decision in

15:45

a way that that will help me

15:48

save some money on taxes. Beast is

15:50

going to be. Maybe it's not big

15:52

at all, Paula. If it's not big

15:54

at all, then who cares about year-end?

15:56

But I love thinking about the tax

15:58

hit. Don't forget, by the way, if

16:00

furnishing cost. People move into a

16:02

new house and the thing that

16:04

always exploded the budget to my

16:06

clients and heck my own budget

16:09

was always, not the cost of

16:11

the house because I do that

16:13

math, it's the 47 trips to

16:15

Home Depot to beautify the place

16:17

once I get into the house.

16:20

And then you tell yourself at

16:22

a time, well we get in

16:24

this house, I'll buy furniture later.

16:26

And then you sit there for

16:28

a week and a half and

16:31

you go, you know what I

16:33

deserve. I deserve nice furniture because

16:35

now I have a nice house

16:37

and I need it to look

16:39

nice. And so we break the

16:42

bank on all of this other

16:44

stuff that comes along. So when

16:46

I say evaluate the whole deck

16:48

of cards, think about holistically the

16:50

purchase, the tax bill, the homeowner's

16:53

insurance, the furnishings, the fixed it

16:55

cost, and come up with a

16:57

plan that's much more than just

16:59

I can afford this mortgage. Yeah,

17:01

there are certainly times when I've

17:04

thought, why do I even bother

17:06

getting a paycheck? Why not just

17:08

send it directly to Home Depot?

17:10

Why am I the middleman here?

17:12

You know how we can make

17:15

this easier? Yeah, exactly. Just make

17:17

up my checks to Lowe's? Yes.

17:19

Why is my bank account the

17:21

intermediary? Because it's all just going

17:23

to go to Home Depot anyway.

17:26

It'd be great if you were

17:28

like the... a line item on

17:30

the Home Depot annual report. Yeah,

17:32

the shareholder's report. Wow, this Paul

17:34

O'Pant's really keeping us in business.

17:37

You know, you're absolutely correct. Budgeting

17:39

for all moving costs, storage costs,

17:41

I mean, moving is just enormously

17:43

expensive. Even if you don't hire

17:45

movers, I've never hired movers, actually,

17:48

I've always done it myself. And

17:50

even still, the cost of renting

17:52

a truck, the cost of... packing

17:54

everything up into boxes, the cost

17:56

of buying more of your meals

17:59

out because all of your Utah

18:01

pencils and pots and pans are

18:03

packed away so you can't cook

18:05

anything. All of those costs are

18:07

significant. I say that for the

18:09

sake of everyone who's listening because

18:12

I know just the law of

18:14

large numbers. Some decently sized proportion

18:16

of this audience is going to

18:18

be moving this year or next

18:20

year, and that's always something to

18:23

keep in the budget. But Debbie,

18:25

to your direct question. Unless there

18:27

is some specific goal associated with

18:29

your ETFs or your mutual funds,

18:31

I wouldn't hesitate to tap that

18:34

money just for the sake of

18:36

letting it sit. What I would

18:38

say is choose a goal for

18:40

that money, whatever that goal may

18:42

be. Maybe that goal is, in

18:45

retrospect, money that you're saving towards

18:47

a home. And at the time,

18:49

you didn't know that that was

18:51

the goal. At the time, you

18:53

were just saving money, and now

18:56

you've decided that the purpose of

18:58

that money is this goal of

19:00

purchasing a home. If so, that's

19:02

great. But assign some type of

19:04

a goal to it. But the

19:07

goal could be anything. Maybe that's

19:09

money that you want to put

19:11

towards having the option to take

19:13

a sabbatical from work or make

19:15

an escape from work or just...

19:18

Downshift apart time. Maybe that's money

19:20

that you want to put towards

19:22

your passion for race car driving

19:24

could be anything. Maybe you're an

19:26

avid comic book collector, but make

19:29

sure it has a goal, whatever

19:31

you choose that goal to be.

19:33

Maybe it's for wacky cat posters.

19:35

Is there a market there like

19:37

an actual upscale? Are there vintage

19:40

ones that you can buy? If

19:42

so, right to Paula, because she

19:44

will buy. Is this like collectibles

19:46

trading? Is this all the way

19:48

out on the efficient frontier like

19:51

a way out on the X-axis?

19:53

But you know that's a home

19:55

run. that's a home run every

19:57

time Paula because you'll buy all

19:59

of them. That very very tail

20:02

end of the efficient frontier like

20:04

far on the X-axis but also

20:06

far on the Y-axis like in

20:08

that same category as collecting baseball

20:10

cards and beanie babies? Way way

20:13

up. Well come on cat posters

20:15

in the same spot as those.

20:17

So Debbie, I hope that helps.

20:19

And thank you for the restaurant

20:21

recommendations. It's funny that you mention

20:24

Thai food in Hell's Kitchen, because

20:26

my favorite restaurant in New York

20:28

is in Hell's Kitchen, and it's

20:30

this cute, like, brick, but very

20:32

cozy, very warm little Italian place.

20:35

It's called Giardino on 54th and

20:37

9th. Very warm, the type of

20:39

place that you never really need

20:41

a reservation for, you can pretty

20:43

much just walk in at any

20:46

time. So yes, if you're ever

20:48

in Hell's Kitchen, G. Ardino, 54th

20:50

and 9th, favorite place in the

20:52

city. But I'll try that Thai

20:54

place. That sounds amazing. Let's go

20:57

as soon as we finish recording.

20:59

I'll fly up there. Awesome. But

21:01

thank you, Debbie. Now on the

21:03

topic of building out a taxable

21:05

brokerage account, so that you can

21:08

have... F you money to be

21:10

able to walk away from your

21:12

job if that's what you choose

21:14

to do. And that's not a

21:16

guarantee that you will make that

21:19

choice. It's simply to have the

21:21

option to make that choice. On

21:23

that topic, we're going to answer

21:25

a question from Lucas, who is

21:27

not in love with his work,

21:30

but it pays really well. And

21:32

so he wants to build out

21:34

that taxable brokerage component so that

21:36

work can become optional. We're going

21:38

to hear from him next. Before

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22:01

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22:08

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22:10

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22:17

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22:22

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22:29

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slash Paula Lucas

25:44

here in North Carolina. I was hoping you

25:46

could help me think through some things

25:49

with my taxable brokerage account. We'd like

25:51

some thoughts on any pitfalls or considerations

25:53

as it relates to growing and then

25:55

using a taxable brokerage account to supplement

25:57

income before retirement. My wife and I are

25:59

both 33 years old. and have one child

26:01

that's nine months old. We've both

26:03

worked in IT consulting for about

26:05

12 years, both for large firms

26:07

and make about $315,000 combined gross

26:10

salary before bonuses. Neither of us

26:12

really enjoy our jobs all that

26:14

much, but we stayed in the

26:16

field because of the good pay

26:18

and the flexibility the job provides

26:20

us. One thing we'd like to

26:23

focus on over the next couple

26:25

of years is growing our taxable

26:27

brokerage so we can eventually take

26:29

our feet off the gas of

26:31

our IT jobs or shift into

26:34

other careers entirely. Here are our

26:36

financial details. Our finances between my

26:38

wife and I are fully combined.

26:40

We own our home that we

26:42

purchased in 2019 for $375,000 that

26:44

we fully paid off in January

26:47

of 2024. So no mortgage payment

26:49

and no heloch associated with our

26:51

house. We own both of our

26:53

cars, full and clear. We have

26:55

about $470,000 in traditional 401k, about

26:57

$130,000 combined in Roth IRA and

27:00

Roth 401k, $10,000 in HSA. $15,000

27:02

and $529,000, $27,000 in company stock

27:04

from my wife, about $40,000 in

27:06

about $160,000 in our taxable brokerage.

27:08

The retirement accounts are all invested

27:10

for the efficient frontier and will

27:13

continue to contribute heavily to our

27:15

401ks while we're working. The brokerage

27:17

account is mainly at low-cost S&P

27:19

500 index funds. We paid off

27:21

our house in a little over

27:23

four years and were able to

27:26

save about $100, $100,000 into a

27:28

brokerage in 2024. with all our

27:30

extra funds pointing that direction. So

27:32

you may be able to tell

27:34

once we have our eyes that

27:36

on our financial goal, we can

27:39

usually hit it. Our yearly expenses

27:41

are usually around $80,000, but with

27:43

daycare costs and other baby expenses,

27:45

we're expecting it to be between

27:47

$100,000 and $110,000 and $110,000 for

27:50

the next few years. What are

27:52

some things we should think about

27:54

and take into account as we

27:56

continue to pad our taxable brokerage

27:58

so we can ease off or

28:00

make a change? and may need

28:03

to pay quarterly taxes to keep

28:05

from owing Uncle Sam more than

28:07

expected at the end. the year.

28:09

But outside of that, what is

28:11

there? Is it as simple as

28:13

building up the account as far

28:16

as we think we need to

28:18

and then drawing down what we

28:20

need to to take care of

28:22

expenses? Thanks for your help, you

28:24

too. And please keep up the

28:26

good work on the show. Lucas,

28:29

first of all, congratulations on not

28:31

just the new family, same as

28:33

Debbie, the new and growing family,

28:35

but also on the enormous gap

28:37

between what you earn and what

28:39

you spend. So $80,000 for a

28:42

family of three is impressive. That's

28:44

absolutely fantastic. And I know that

28:46

you mentioned that amount is going

28:48

to rise to about $110,000. For

28:50

a family of three, that is

28:52

still incredible, particularly given the tremendous

28:55

delta between what you earn and

28:57

what you spend. So I want

28:59

to congratulate you and commend you

29:01

on that. Yeah, the fact that

29:03

they are. approaching a million dollars

29:06

in investment assets alone, not counting

29:08

the house, and the fact that

29:10

they have no debt, puts them

29:12

in an enviable position for the

29:14

future. Exactly. And this is why

29:16

there are quite a few of

29:19

us that rally strongly against. People

29:21

who are generally older, they've already

29:23

made their way saying, follow your

29:25

passion when you're younger, because of

29:27

the fact that there are sometimes

29:29

jobs that are not the thing

29:32

that we are most passionate about,

29:34

but because we've swam the moat,

29:36

like Lucas has, and he now

29:38

has a skill set, that affords

29:40

him this ability to do everything

29:42

else that he wants to do,

29:45

there's a lot to be said

29:47

for that. There's a ton to

29:49

be said for that. I think

29:51

there's too many people that are

29:53

not facing the hard headwinds that

29:55

come with success in any job

29:58

to get to the point where

30:00

even. And if they don't love

30:02

the thing, they love everything else

30:04

about their life. You know, one

30:06

of my biggest clients, my wealthiest

30:08

clients, made stop signs for a

30:11

living, made stop signs. And you

30:13

know, it was cool, Paul, a

30:15

part of the reason he made

30:17

so much money was, there's not

30:19

a lot of competition, because there's

30:22

not a lot of people going,

30:24

you know what I'm going to

30:26

college for? I want to make

30:28

a stop sign. what she calls

30:30

Main Street businesses, but often these

30:32

are dumpster rollaway companies or porta-potty

30:35

companies or laundromat. Yeah. Her first

30:37

business acquisition was a laundromat. It

30:39

is for me a way better

30:41

approach to life than chasing something

30:43

that seems on paper to be

30:45

really easy and isn't. And I'll

30:48

point directly at it, Paula, because

30:50

you and I were at a

30:52

conference together last year. where our

30:54

friend Nathan Perry talked about the

30:56

fact that the biggest thing high

30:58

schoolers want to be right now

31:01

is an influencer. And yet when

31:03

you talk to them about what

31:05

an influencer really does behind the

31:07

scenes, high schoolers don't want to

31:09

do any of that. Do not

31:11

want to do that. I live

31:14

in Texarkana, Texas. You know what's

31:16

on the shelf at my local

31:18

Target and Walmart? What's that? Ring

31:20

lights. Right. Ring lights in target.

31:22

That shows how many people are

31:24

chasing this quote, quote, dream, dream,

31:27

of doing what I'm passionate about.

31:29

Which means if the market isn't

31:31

over saturated, which by now probably

31:33

is, that the money is in

31:35

manufacturing and selling ring lights. Yeah,

31:38

good point. Right? During a gold

31:40

rush, sell shovels. Yeah, we actually

31:42

did a historical episode last year

31:44

talking about Deadwood. And the people

31:46

in the Wild West who made

31:48

money were the people mining the

31:51

miners. Right. The miners weren't making

31:53

money. The people mining the miners

31:55

were making money. Right. And Cal

31:57

Newport, who's also a previous guest

31:59

on the podcast he's actually been

32:01

on multiple times. I'll link in

32:04

the show notes to our episodes

32:06

with Cody Sanchez and with Cal

32:08

Newport. But Cal Newport has one

32:10

of the best and most nuanced

32:12

takes on this topic. He says

32:14

that the notion of following your

32:17

passion is a little too one-dimensional,

32:19

it's a little too reductive, and

32:21

that what a person needs to

32:23

do. is follow their curiosity, not

32:25

their passion, but their curiosity, and

32:27

assuming that they have minimum viable

32:30

curiosity about a given subject matter,

32:32

then as they dive more deeply

32:34

into that subject matter, they will

32:36

naturally become more passionate about it,

32:38

because done in Kruger effect, when

32:40

you are on the outside of

32:43

an industry, if you don't know

32:45

anything about that industry, you don't

32:47

know what you don't know what

32:49

you don't know. And as you

32:51

start to dive into that space,

32:54

you then become aware of what

32:56

you don't know, which triggers curiosity

32:58

because as you become aware of

33:00

what you don't know, you want

33:02

to learn about all of these

33:04

many things that you are suddenly

33:07

aware that you don't know. And

33:09

so, assuming minimum viable spark, the

33:11

process of diving into a new

33:13

subject matter is what engenders that...

33:15

what ultimately a person would call

33:17

passion. So passion is therefore the

33:20

result, the consequence, and not the

33:22

cause of going into a field.

33:24

And while we're on this topic,

33:26

an offshoot of this Paula also

33:28

for the part of the audience

33:30

that is looking at retirement, this

33:33

even translates into retirement because the

33:35

happiest retirees volunteer with three community

33:37

organizations and officially belong to one,

33:39

either a religious organization or the

33:41

Kwanis, the Lines Club, whatever it

33:43

might be, the rotary, they belong

33:46

to some community club where they

33:48

pitch in. And a lot of

33:50

people have given me the feedback.

33:52

I don't know what I'm passionate

33:54

about. Like why would I join

33:56

Rotary? I don't know anything about

33:59

it. And to your point in

34:01

the Newport research, once you get

34:03

in you start exploring, you'll find

34:05

out very soon whether it actually

34:07

resonates with you or not. When

34:10

I first got involved with charitable

34:12

giving, I felt really bad because

34:14

I wasn't really passionate about anything.

34:16

It's not horrible. I'm like, I

34:18

want to give my time and

34:20

my effort because I see successful

34:23

people do that and they're in

34:25

their community. So I'm going to

34:27

model that behavior, but I don't

34:29

know anything. I had a client

34:31

that was the president of the

34:33

Arthritis Foundation. My mom has some

34:36

arthritis. So I just volunteered for

34:38

one of their events. And then

34:40

I started going to a couple

34:42

meetings that I found out about

34:44

juvenile arthritis and how horrible it

34:46

is for kids. that have arthritis.

34:49

And then I found out the

34:51

research that's happening in the world

34:53

of arthritis. So you see exactly

34:55

what you're talking about is happening

34:57

even with charitable giving. I went

34:59

down the rabbit hole a little

35:02

bit. I found my passion by

35:04

just lacing up my shoes and

35:06

joining the organization. Right. And so

35:08

to Lucas's situation, Lucas is like,

35:10

what's that to do with me?

35:12

Yeah. Lucas, we will get to

35:15

your question, I promise. But to

35:17

Lucas's a situation where he talked

35:19

about how... He and his spouse,

35:21

neither of them, are really in

35:23

love with the work that they

35:26

do. The question that it brings

35:28

up in me is, is it

35:30

the subject matter itself, IT consulting,

35:32

or is it the specific circumstance

35:34

of the company that he's working

35:36

for and the supervisor or the

35:39

manager that he's reporting to that

35:41

he and his spouse are both

35:43

reporting to? Oh. Because what we

35:45

know is two things. Number one,

35:47

we know that... If you can

35:49

isolate a person's probability of liking

35:52

or disliking their work, a person's

35:54

feelings about their direct supervisor is

35:56

the one single isolated variable that

35:58

has the greatest degree of correlation

36:00

with whether they like or dislike

36:03

their work. If you like your

36:05

direct supervisor you are far

36:07

more likely to also enjoy your

36:09

day-to-day work and vice versa. That's

36:12

one well-documented piece

36:14

of research when it comes to

36:16

career satisfaction and so

36:19

one question that I have is

36:21

is it that they dislike IT

36:23

consulting? Lucas, is it that you

36:25

and your wife dislike IT consulting?

36:28

Or is it that neither of

36:30

you are particularly fond of your

36:32

direct supervisor? Because those are

36:34

very different problems that's to solve.

36:37

The other question that I have

36:39

is, one other thing that we

36:41

know from the research is the

36:43

autonomy, mastery, and purpose. Those

36:46

three variables, those three qualities

36:48

have a huge degree of correlation

36:50

with job satisfaction.

36:52

So in this. specifics of the

36:54

day-to-day work that you do in

36:57

the company that you work for

36:59

in the way that all of

37:01

that is structured and set up.

37:03

How much autonomy do you have? How

37:05

much mastery do you feel that you

37:08

can develop? And how much

37:10

purpose do you think that this

37:12

work contains? And again, can

37:14

you do this work in a

37:16

way that optimizes for those

37:18

variables? And there's a reason

37:21

directly... to Lucas's problem,

37:23

Paula, that I think this

37:25

is material, which is, I think

37:28

the goal here, based on

37:30

his lack of satisfaction, his

37:32

spouse's lack of satisfaction, is

37:35

to be what people call

37:37

coast-figh, so that he

37:39

has saved enough, he's wrong enough

37:42

out of this job, that he

37:44

no longer has to save

37:46

to reach his long-term goals.

37:48

the reason that your question

37:50

becomes material in the math

37:52

is this if it's the

37:55

nature of the beast meaning

37:57

it's not the employer it's

37:59

not his direct work culture,

38:01

but it truly is what they

38:03

do that they don't love, then

38:05

I'm going to want money that's

38:07

readily available much more closer to

38:10

today, which means that I am

38:12

taking less risk with my assets

38:14

and thereby I'm using probably a

38:16

lower rate of return assumption because

38:18

of that. If it can be

38:21

solved with culture, And if Lucas

38:23

talked about maybe going out and

38:25

getting work, working in something that

38:27

does light him up, if he

38:29

has some degree of certainty on

38:31

that, and he knows that he's

38:34

going to continue to bring in

38:36

income for X number of years,

38:38

then he can invest more aggressively.

38:40

and then used maybe a more

38:42

robust, still conservative but more robust

38:45

rate of return, than he would

38:47

if it just is the nature

38:49

of the work and he's not

38:51

sure if he's going to bring

38:53

in money or not in his

38:56

new pursuits. Given that most of

38:58

his money is invested, on one

39:00

hand he wants to have a

39:02

work optional setup, but given that

39:04

most money is invested, he's got

39:06

$40,000 in cash, that's an emergency

39:09

fund, that's a very reasonably sized

39:11

emergency fund. Beyond that, everything else

39:13

is in predominantly S&P 500 index

39:15

funds, is in long-term investments. Lucas,

39:17

even though you say that your

39:20

objective is to become work optional,

39:22

it sounds based on the asset

39:24

allocation like the design of what

39:26

you're building is, let's optimize for

39:28

20 years from now, which is

39:30

fine, but I'm just making that

39:33

observation. Well, it's fine until it's

39:35

not fine. Right. Which means that

39:37

all of a sudden he needs

39:39

to tap the money today and

39:41

at the same time the market's

39:44

down. And then you start running

39:46

into a sequence of returns issues.

39:48

Yeah, but Lucas, I mean, two

39:50

things that he's got going for

39:52

him. One is that he's in

39:55

a dual income household, which off.

39:57

at some of that risk, right?

39:59

Good point. Because it's unlikely that

40:01

both of them will lose their

40:03

jobs simultaneously. Well, unless they decide

40:05

to willfully do it, right? Right.

40:08

I mean, if they decide to

40:10

wolf, which was my point, Paula,

40:12

if they decide that they're going

40:14

to both, which was my point,

40:16

Paula, if they decide that they're

40:19

going to both enjoy time together

40:21

pursuing whatever the next thing is,

40:23

whatever the case may be. Yeah,

40:25

it seems to me. that it's

40:27

unlikely that they would both voluntarily

40:30

quit without reallocating some of their

40:32

portfolio towards cash and cash equivalents.

40:34

Sure. Otherwise it seems to me

40:36

given the dual income nature that

40:38

they would stagger it because dual

40:40

income is one of the best

40:43

defenses against these types of risks.

40:45

You have that natural diversification in

40:47

income sources. You have multiple streams

40:49

of income because you have multiple

40:51

income earners in the household. Well,

40:54

and at the very least, if

40:56

he wasn't considering that, he definitely

40:58

should be. I don't know, outside

41:00

of getting granular about how much

41:02

money he thinks he's going to

41:04

spend, and setting money up according

41:07

to the way he thinks he's

41:09

going to spend money, Paula. I

41:11

don't know that I have any

41:13

advice over and above what we've

41:15

talked about so far. The only

41:18

other piece of advice that I

41:20

may have is right now shovel

41:22

as much money away as you

41:24

possibly can. I look at his

41:26

numbers and they look fantastic. They

41:29

have nearly half a million dollars

41:31

in a traditional 401k. Their home

41:33

is paid off, free and clear.

41:35

They have no debt. They have

41:37

money in an HSA. They have

41:39

money in a 529. Their child

41:42

is very young and so relative

41:44

to that child's age to have

41:46

15,000 in a 529 already is...

41:48

amazing. That's fantastic. And given that

41:50

the benefit of a 529 is

41:53

that tax deferred money is able

41:55

to grow in compound, prioritizing that

41:57

529 now as early as possible

41:59

is absolutely the name of the

42:01

game. Makes it so much easier

42:04

later. Just so much easier. Let

42:06

the market do the heavy lifting.

42:08

Joe, I agree with you. It

42:10

seems to me that Lucas is

42:12

on the right track. I don't

42:14

see any major changes that he

42:17

should make other than if at

42:19

some point in the future. either

42:21

he or his wife decide that

42:23

they want to exit out of

42:25

the work that they're currently doing,

42:28

then they would need to reallocate

42:30

their positions accordingly. But assuming that

42:32

they both plan on continuing to

42:34

work, then keep on keeping on.

42:36

The time that I would make

42:38

a change would be the time

42:41

that they decide that they have

42:43

some type of an exit date.

42:45

I guess if we're going to

42:47

get granular at all on... where

42:49

he's saving because he really wanted

42:52

to know about the taxable brokerage.

42:54

What's funny Lucas is you want

42:56

to know about the taxable brokerage?

42:58

I want to know about the

43:00

tax shelters. And the reason I

43:03

want to know about the tax

43:05

shelters is I want to know

43:07

that I've got those later years

43:09

taken care of with the money

43:11

that I've saved there so that

43:13

I can feel very comfortable about

43:16

not saving more money into those

43:18

spots as much. while I chase

43:20

the taxable brokerage more. So I

43:22

think that's just a good piece

43:24

of retirement planning software, Paula, and

43:27

looking at the ages 55 and

43:29

after, and then comparing that number

43:31

with what's a good conservative amount

43:33

of money that the money inside

43:35

the tax shelters will reach. And

43:38

then I know that when I

43:40

put money toward the taxable brokerage

43:42

account that I'm safe to use

43:44

that money earlier, that it's 100%

43:46

flexible and then I'm not worried

43:48

about age after 55. I've got

43:51

that taken care of and this

43:53

again I think is where the

43:55

nebulousness of the what is Lucas

43:57

going to do next really plays

43:59

into this because ostensibly you could

44:02

take everything that I just said

44:04

be a little less efficient and

44:06

just sock money into the taxable

44:08

brokerage account because now I have

44:10

it for now or later right

44:12

I've got no restrictions right but

44:15

knowing that I'm gonna need money

44:17

for later no matter what But

44:19

he's got half a mill in

44:21

the 401k. Yeah, my gut says

44:23

that might be enough. Yeah. That

44:26

might be. But I don't know

44:28

what his expense, what his goals

44:30

are. So I think it's worth,

44:32

you talked about earlier with Debbie

44:34

doing just a little bit of

44:37

math. It's fairly easy. Grab a

44:39

calculator online and do some pretty

44:41

simple calculations around retirement expectations and

44:43

then give that money the seal

44:45

of approval that you're good. I

44:47

also think there's not that much

44:50

money in the HSA and if

44:52

he has the ability to put

44:54

money in the HSA, that would

44:56

be great because no matter what

44:58

happens, if he needs to spend

45:01

that money sooner, he can spend

45:03

it later, if he needs to

45:05

spend it sooner, he can spend

45:07

it later, if he doesn't need

45:09

it, he can save it for

45:11

later. Exactly. In a way, for

45:14

me, it's better than the taxable

45:16

brokerage account because you know he's

45:18

going to need the money for

45:20

health concerns at some point anyway.

45:22

If they're still eligible to put

45:25

money in an HSA, when I

45:27

saw that they only had 10,000

45:29

in an HSA, my immediate assumption

45:31

was maybe there was a point

45:33

in time in which they were

45:36

eligible to make those contributions. Some

45:38

legacy thing. Right. Yeah, maybe five

45:40

years ago they had a high

45:42

deductible health plan that was HSA

45:44

compatible, but maybe they no longer

45:46

do. Sure. Yeah. Well, if that's

45:49

the case, Lucas, then forget it.

45:51

Right. But no, Joe, you're right.

45:53

That was an unstated assumption on

45:55

my part. So if you are

45:57

still eligible to make HSA contributions,

46:00

then absolutely do. that, but do

46:02

not go into a high deductible

46:04

health plan purely for the sake

46:06

of getting HSA eligibility. Don't let

46:08

the HSA eligibility wag the choosing

46:11

a plan dog. We're going to

46:13

see how far we can stretch

46:15

that out. Don't let the make

46:17

a podcast tail wag the financial

46:19

advice dog. I don't know what

46:21

that means. And Lucas, I want

46:24

to commend you on the fact

46:26

that your investments are allocated along

46:28

the efficient frontier. That is a

46:30

fantastic way of allocating your assets

46:32

at this juncture. So assuming that

46:35

you and your wife will continue

46:37

to work, it sounds as though

46:39

you're doing everything right. So keep

46:41

on keeping on. Oh, and speaking

46:43

of efficient frontier. Right. So, Lucas,

46:45

thank you for the question and

46:48

congratulations and Joe, to your point,

46:50

speaking of the efficient frontier, we're

46:52

going to have a discussion about

46:54

that next. This episode is brought

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49:29

final question today, which is

49:31

about the efficient frontier, comes

49:33

from Grant. Hi Paula and

49:35

Joe. My name is Grant

49:37

and I've been a long

49:39

time listener. I really love

49:41

all of your practical content.

49:43

I have a question though

49:45

on the efficient frontier. In

49:47

listening to a lot of

49:49

these past episodes, I can't

49:51

help but feel like there's

49:53

a whole lot of cherry

49:55

picking. and timing the market

49:57

being implied in the way

49:59

you and Joe are talking

50:01

about it. Specifically the number

50:03

1970 keeps coming up or

50:05

I should say the date

50:07

1970 comes up and that

50:09

just has red flags written

50:12

all over it because for so

50:14

long you all have cautioned all

50:16

of us investors against

50:18

thinking about a specific time

50:20

frame as an arbitrary

50:23

date from which somebody is

50:25

going to pick their returns.

50:27

In this case, why 54 years?

50:29

What is so significant about

50:32

1970? What happens if you

50:34

go back to say 1965 or

50:36

earlier? I know some of this

50:38

is probably the limitations of the

50:40

tools, but I would really love

50:43

to hear your perspective on these

50:45

things and justify it in a

50:47

better way so I can help

50:49

understand the efficient frontier more

50:52

effectively. Thank you and

50:54

keep creating all the great

50:56

content. Grant, fantastic question. Thank

50:59

you so much for the question.

51:01

And I'm going to tease Grant

51:03

just a little bit, Paul, up

51:05

by saying that, Grant, I get

51:07

a nickel every time somebody uses

51:09

the efficient frontier and you're on

51:12

to me. I was trying to

51:14

manipulate all the data. Damn it. Your

51:17

little efficient frontier affiliate

51:19

graft? That's right. We were going to

51:21

see how long we could pull this

51:23

over. You're actually part owner

51:25

of portfolio visualizer, Joe?

51:28

Is that? It is so. And

51:30

why did I have to say on

51:32

those training sessions to go with the

51:34

free part and not click that big

51:36

button? Oh, foiled again. What was

51:38

I thinking? And actually Grant, I know

51:40

you're not the only one that wonders

51:43

that question and when I was a

51:45

financial planner, I worked with a bunch

51:47

of engineers and I love your Spidey

51:49

sense, right? I love the fact that

51:51

you're going, wait a minute, why is

51:53

he worried about 52 years? Why is

51:55

he talking about, which is by the

51:57

way, because the time frame was 19.

51:59

70 to 2022 on that

52:02

material. So why that?

52:04

There's actually a very simple

52:06

answer, Grant, and to

52:08

everybody else who's wondering

52:10

this, which is, when

52:12

I went looking for this

52:15

data, when I went looking

52:17

for the fact that I

52:19

knew that VTSAX and VTA

52:21

were not efficient and that you

52:24

could be more efficient, I

52:26

wanted data that proved that

52:28

proved And so when I

52:30

went diving into data banks,

52:32

a guy that does a

52:34

ton of data around this

52:36

was Paul Merriman and Chris

52:38

Peterson, and they run a

52:40

nonprofit foundation to teach people

52:42

financial literacy. So I've known

52:44

Paul Merriman for a long

52:47

time. I don't distrust Paul

52:49

Merriman's motives. Also, Paul Merriman's

52:51

repute in this community. Imagine

52:53

if he were making all

52:55

this stuff up. And plus,

52:58

you can look at the

53:00

different portfolios that he has

53:02

worked through in all of

53:04

his writing, and it's not

53:06

all 52 years. I just

53:08

cherry-picked that one,

53:11

only to make the point

53:13

to VTSAX devotees, who

53:15

misunderstood what J.L. Collins

53:18

was actually saying. Because

53:20

he wasn't saying it was efficient.

53:22

He wasn't saying it was the

53:24

best way. He was saying, you

53:26

don't need to be neurotic about

53:28

which investment to pick when you

53:31

start out, pick the total stock

53:33

market, and you're going to be

53:35

okay. And so my goal was

53:37

simply to show devotees the Paul

53:39

Merriman work, and it just happens

53:41

that it was 52 years. Now,

53:43

that's not the only piece that

53:45

he has, by the way, Paula.

53:48

You can go into any of

53:50

Merriman's huge stack of research and

53:52

they have all kinds of stuff.

53:54

I just focused on that one

53:56

because it made the very simple

53:58

point that I was trying to

54:00

make. And my goal with the

54:03

efficient frontier by the And you

54:05

know, what, whether you use it

54:07

or not, is completely up to

54:09

you. My goal was just to

54:11

show our community that if you

54:13

get a little bit more scientific

54:15

and look under the hood, A,

54:18

it's not as hard as the

54:20

words efficient frontier sound like, and

54:22

B, it's fairly easy to see

54:24

why this won a Nobel Prize.

54:26

Just the fact that you can

54:28

go back to any time frame,

54:30

you can go back just 10

54:32

years, look at four different asset

54:35

classes, and say, Put these in

54:37

a pile in the most efficient

54:39

way over the last 10 years

54:41

and it'll do it. You can

54:43

exclude, you can include, you can

54:45

go 52 years, you can go

54:47

26 years, you can go whatever.

54:50

By understanding and knowing what you

54:52

have and having that money based

54:54

on your goal, I think the

54:56

big thing that happens then is

54:58

when bad things happen in the

55:00

market and listen, every single strategy

55:02

has an Achilles heel. There isn't

55:05

one that has one. If you

55:07

think you have a strategy that

55:09

doesn't have an Achilles heel, you

55:11

don't understand your strategy because there

55:13

isn't one. So understanding in the

55:15

case of the efficient frontier what

55:17

the volatility is on your portfolio

55:20

and why you placed it with

55:22

the way you placed it does

55:24

the most miraculous thing I can

55:26

say as a former financial planner

55:28

and that is you don't enter

55:30

the nuclear codes. and blow up

55:32

your plan the second something bad

55:34

happens. That truly is what I'm

55:37

looking at. Now, to a second

55:39

piece of this, that I also

55:41

want to comment on, I don't

55:43

love the portfolio visualizer tool grant

55:45

specifically for what you talked about,

55:47

because if I put every asset

55:49

class in there, I don't know

55:52

why some of these asset classes,

55:54

they only have like six years

55:56

of data. I have to then

55:58

exclude that asset class because this

56:00

particular tool doesn't have that. And

56:02

if that drives you crazy, I'm

56:04

with you, I'm with you. I'm

56:07

totally with you. I want to

56:09

see 52 years, I want to

56:11

see 50 years, I want to

56:13

see 42 years, I want to

56:15

see 40 years. I can't even

56:17

look back at all Merriman stuff

56:19

using this particular tool. because the

56:22

tool isn't robust enough to dive

56:24

completely into Merriman's research from the

56:26

early years. I just know when

56:28

I look at his data that

56:30

I can check and knowing again

56:32

he and Chris Peterson and the

56:34

work that they do that that's

56:36

been fact-checked a thousand percent. Their

56:39

goal is for people to have

56:41

more money. I know that's an

56:43

unsatisfying answer. I know that that's

56:45

not what you're looking for. What

56:47

you're hoping I think is that

56:49

I'll show you 51 years of

56:51

data, 50 years of data, 49

56:54

years date of 48 years, date

56:56

of 47 years data and print

56:58

out all the different years and

57:00

here's how, here's how volatility would

57:02

have expected it. I mean, Paula,

57:04

maybe we can do almost like

57:06

we did with money with Katie

57:09

and have Chris Peterson or Paul

57:11

join us for a discussion about

57:13

their research. You know, I've spent

57:15

quite a bit of time digging

57:17

through the enormous trove of data

57:19

on Paul Merriment's website. If you

57:21

look at... our YouTube video in

57:24

which we interviewed Paul Merriman and

57:26

we'll link to that in the

57:28

show notes as well. We on

57:30

the YouTube video showed some tables,

57:32

some charts from some elements of

57:34

his research that we were able

57:36

to find after hours and hours

57:38

and hours of looking through all

57:41

of his data, but he has

57:43

so many tables and so many

57:45

charts and such robust data on

57:47

his site that it honestly takes

57:49

an enormous degree of focus and

57:51

an enormous degree of expertise just

57:53

to understand how to read the

57:56

data that he has produced, how

57:58

to read the research that he

58:00

has produced. Yeah, in a way,

58:02

I feel bad because I picked

58:04

this particular piece of research when

58:06

your point Paul, there's countless stuff.

58:08

Now why the one I picked

58:11

happens to be 52 years and

58:13

not just 50 years, that's a

58:15

question for Paul and Chris that

58:17

I have not asked that I

58:19

have not asked. But I can

58:21

tell you the that I picked

58:23

it. The reason I like this

58:26

study is it kind of shows

58:28

Merriman and Peterson retooling and going,

58:30

okay, let's see if we go

58:32

from 10 funds to only four.

58:34

Oh, we accidentally made more money.

58:36

Let's see if we go from

58:38

those four funds being worldwide and

58:40

US to just US. Oh, we

58:43

made more money. Let's see if

58:45

we go, well, it looks like

58:47

value has been closer. to being

58:49

more efficient and what we're looking

58:51

for. Let's see if we skew

58:53

more toward value. And you can

58:55

see then, Paula, them tweaking and

58:58

tweaking and tweaking, which is why

59:00

I like that specific piece of

59:02

research, because it shows, hmm, what

59:04

if we did this? What if

59:06

we did this? What if we

59:08

did this? What if we do

59:10

this? Now the fact that that's

59:13

coupled with 52 years? I don't

59:15

know. So the question that I

59:17

have, Joe, as I listen to

59:19

your answer. If I were a

59:21

college professor whose job was to

59:23

deconstruct an argument, the first thing

59:25

I would do is I would

59:27

pull out anything within your answer

59:30

that says, Paul Merriman has a

59:32

great reputation in this community, Paul

59:34

Merriman is a trusted source, like,

59:36

okay, let's remove that, right? Let's

59:38

make this identity agnostic so that

59:40

it is not a referendum on

59:42

any given individual. Let's also remove

59:45

the component in which we talk

59:47

about the fact that it want

59:49

a Nobel Prize. the research, not

59:51

Paul Merriman himself, but the research

59:53

around the efficient frontier from Harry

59:55

Markowitz won a Nobel Prize. Let's

59:57

pull that out as well, right?

1:00:00

Let's pull out any appeal to

1:00:02

authority as a corroborating construct. And

1:00:04

let's look in an isolated way

1:00:06

purely at the data. The question

1:00:08

then that I have is, is

1:00:10

there some type of tool or

1:00:12

method? that grant or any average

1:00:15

individual could use in order to...

1:00:17

replicate this research on their own,

1:00:19

because in the scientific method, a

1:00:21

thing is proven if it's replicable.

1:00:23

Your answer is this. It is

1:00:25

out there. I don't know where

1:00:27

to find it for a person

1:00:29

who is not a professional. What

1:00:32

is the distinction between tools available

1:00:34

to professionals versus tools available to

1:00:36

lay people? Because the tools available

1:00:38

to lay people don't go back

1:00:40

that far, and I have no

1:00:42

idea why. Not every asset class

1:00:44

goes back that far. So my

1:00:47

problem with replication using portfolio visualizer

1:00:49

is that for some reason, any

1:00:51

of the people that have dug

1:00:53

into this, some of the asset

1:00:55

classes, they only go back seven,

1:00:57

eight years. Right. Sometimes even shorter.

1:00:59

And that drives me crazy because

1:01:02

there is data. for these asset

1:01:04

classes, not like somebody came up

1:01:06

with these seven years ago. I

1:01:08

don't know why Portfolio Visualizer stopped.

1:01:10

I don't know a better tool

1:01:12

when I get to just the

1:01:14

basic stuff. I can come fairly

1:01:17

close and I think that a

1:01:19

lot of our people in the

1:01:21

Ford anything community can as well,

1:01:23

but I can't get to the

1:01:25

exact stuff because my tool isn't

1:01:27

robust enough. I know that when

1:01:29

I was a pro, I had

1:01:31

access to research a tool that

1:01:34

frankly... was easier to use. It

1:01:36

cracks me up because you'd think

1:01:38

it would be the other way

1:01:40

around. It was easier to use.

1:01:42

It was more intuitive. It was

1:01:44

really fun. It was really fun.

1:01:46

Portfolio visualization, kind of fun. This

1:01:49

tool was really fun. But I

1:01:51

don't have access to that anymore.

1:01:53

Because you're no longer licensed. Essentially,

1:01:55

you have to hold a license

1:01:57

in order to access. Yes. What

1:01:59

was the name of that tool?

1:02:01

It was just an efficient frontier

1:02:04

tool that was proprietary to American

1:02:06

Express. I don't have that. That

1:02:08

piece is frustrating. I think though

1:02:10

diving into the research that's on

1:02:12

Merriman site and then corroborating that

1:02:14

with other outside, which there's time

1:02:16

you can go to Morningstar, you

1:02:19

can go. you know what I

1:02:21

mean? The year by year. So

1:02:23

I can go to a morning

1:02:25

star chart, I can look at

1:02:27

what Merriman inputted, and I can

1:02:29

make sure those two numbers align.

1:02:31

That's actually easy to do and

1:02:33

definitely can be done. If somebody

1:02:36

knows of an available tool, because

1:02:38

I know we've got some phenomenal

1:02:40

money nerds here, that I have

1:02:42

not been able to find, I

1:02:44

would love to hear about other

1:02:46

efficient frontier tools that I could

1:02:48

go dig into as well. At

1:02:51

one point Paula, I was... working

1:02:53

with a tech guy on seeing

1:02:55

what it would cost to build

1:02:57

it myself. There's a quote from

1:02:59

Buckminster Fuller in which he says,

1:03:01

if you want to teach people

1:03:03

a new way of thinking, don't

1:03:06

bother trying to teach them. Instead,

1:03:08

give them a tool, the use

1:03:10

of which will lead to new

1:03:12

ways of thinking. And what that

1:03:14

tells me is that if a

1:03:16

person wants to learn the efficient

1:03:18

frontier, the... best way to do

1:03:21

so is to play with tools

1:03:23

that teach the efficient frontier. That

1:03:25

is so much more effective than

1:03:27

hearing anyone talk about it. Right

1:03:29

now, Portfolio Visualizer, despite all of

1:03:31

its limitations, is the best tool

1:03:33

that I am aware of that

1:03:35

the average layperson can access that

1:03:38

will help you learn the efficient

1:03:40

frontier. And so for any... Questions

1:03:42

that you have around the historical

1:03:44

record and how far it goes

1:03:46

back. I mean, just really for

1:03:48

any questions that you have about

1:03:50

the efficient frontier at all, go

1:03:53

play with portfolio visualizer. Friday night

1:03:55

with a beer, just sit down

1:03:57

and seriously, have some fun messing

1:03:59

around with the variables and portfolio

1:04:01

visualizer. And I think that will

1:04:03

show you a lot. But you're

1:04:05

right. Limitations, the data set limitations

1:04:08

there, are frustrating and I don't

1:04:10

know of any better tool. This

1:04:12

is interesting, Paula. I don't have

1:04:14

an answer, so I probably shouldn't

1:04:16

say this. But one question, and

1:04:18

I've said this before on the

1:04:20

show, always ask who, not how.

1:04:23

And so I just put it

1:04:25

out there, like who are my

1:04:27

who's that might know this? I

1:04:29

actually know a couple who's, and

1:04:31

I'll get back with everyone on

1:04:33

a future episode too. Is this

1:04:35

a cliffhanger, Joe? Unintentionally. I should

1:04:37

just shut my mouth, but I

1:04:40

really want to solve this riddle

1:04:42

of finding a better tool. And

1:04:44

if there is one, then I

1:04:46

just thought of a couple of

1:04:48

leads that are people I probably

1:04:50

should ask before this. All right.

1:04:52

Well, stay tuned. Don't-dum. For a

1:04:55

future episode in which we pull

1:04:57

the minds of some of our

1:04:59

frontieriest friends. So Grant, thank you

1:05:01

for the question. And have fun

1:05:03

playing with portfolio visualizer. Joe, we've

1:05:05

done it again. All that in

1:05:07

one episode. So much. I didn't

1:05:10

think we could do it, and

1:05:12

we did. Oh, we can always

1:05:14

do it. We can do anything,

1:05:16

just not everything, but anything. Oh,

1:05:18

where have I heard that before?

1:05:20

It kind of sounds familiar. Joe,

1:05:22

where can people find you if

1:05:25

they'd like to hear more? You

1:05:27

will find me at the Stacking

1:05:29

Benjamin Show every Monday, Wednesday, Friday.

1:05:31

It's a variety show about money.

1:05:33

It's meant to be a you

1:05:35

can do this show, a confidence

1:05:37

boost, and hanging out with friends

1:05:39

like Paula Pant. And that's on

1:05:42

our Friday shows Monday. We have

1:05:44

our mentor Monday and Wild Wednesday,

1:05:46

where we have our TikTok, where

1:05:48

we look at some hilariousness on

1:05:50

TikTok. And we dive into a

1:05:52

headline about you and your money.

1:05:54

And some of the people who

1:05:57

might be doing things that might

1:05:59

separate you from your money. brokerage

1:06:01

firm where the firm really did

1:06:03

everything correctly, quote unquote,

1:06:05

by the book and still

1:06:07

lost a lawsuit because an

1:06:09

older person got scammed and

1:06:11

they didn't ask enough questions.

1:06:14

So how do you fight

1:06:16

these battles? We take headlines

1:06:18

like that one and talk

1:06:20

about here's what the standard

1:06:22

is. Here's what your advisor should

1:06:24

be asking if you have advisors.

1:06:27

Here's what you need to do

1:06:29

to keep your money safe. So

1:06:31

we take different headlines and

1:06:34

do things like that at

1:06:36

Stacking-Betchments. Amazing. Well, thank you

1:06:38

for spending this time with

1:06:41

us, Joe. And thanks to

1:06:43

all If

1:06:49

you enjoy today's episode, please do

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opening that up at the end of

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March, the week of March 24 through

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28. So if you've been wanting to

1:07:34

level up your salary negotiation skills, this

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To get email updates, go

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next race. remember, we open our

1:08:18

doors March 24. March 24. Thank

1:08:20

you so much for tuning

1:08:22

in. This This is Affording I'm

1:08:24

I'm Paula Pant. I'm Joe Salcy High. we'll meet

1:08:26

you in the next episode.